Provident-Lakeland deal closure timeline seen as 'aggressive' to some experts

A backdrop of increased regulatory scrutiny and a recently settled investigation with the U.S. Department of Justice has raised questions about whether Provident Financial Services Inc. and Lakeland Bancorp Inc.'s announced merger can close within the companies' expected time frame.

The banks announced the all-stock merger deal valued at $1.28 billion with expectations it will close in the second quarter of 2023. However, some industry experts believe that timeframe is too aggressive given Lakeland's recently settled investigation with the DOJ amid the environment of increased regulatory scrutiny. Conversely, others believe the deal is too small to fetch extra regulatory scrutiny, and the companies' recent history of deal closings bodes well for the second quarter 2023 close estimate.

The 10 U.S. bank deals with announced deal values between $1 billion and $5 billion announced since Jan. 1, 2020, have taken a median of 202 days to close. Provident and Lakeland's close date estimate puts the anticipated days to close between 186 if it were to close on the first day of the quarter and 276 if it were to close on the last day of the quarter.

The companies were confident in their projected timeframe when speaking on a call to discuss the transaction.

"The regulatory environment, as we all know, is a little bit more difficult than it has been but both of our organizations have floated this transaction with all of our regulatory agencies and have not heard anything that would give us a reason for pause," President and CEO Anthony Labozzetta said.

However, the executive noted that if the transaction is boosted to Washington from the regional level, "then we obviously don't know what the attitudes are down there, and it might delay it somewhat," he said.

The potential for delays

Some industry experts were not as confident in the second quarter 2023 estimate.

"The timeline is realistic under normal circumstances, but given some of the other aspects of the transaction, it might be a little bit aggressive," Matthew Veneri, head of investment banking and managing director of the Financial Institutions Group at Janney Montgomery Scott, said in an interview. "I wouldn't be surprised if it went longer than nine months."

One aspect that could delay regulatory approval is Lakeland's wholly owned subsidiary Lakeland Bank's recent DOJ investigation. On Sept. 28, the bank entered into a $13 million settlement agreement with the DOJ to resolve allegations that it violated fair lending laws and engaged in a pattern or practice of lending discrimination by redlining in the Newark metropolitan area.

Veneri said the investigation and subsequent settlement could impact approval and closing given that Lakeland shareholders will own just over 40% of the combined company.

"When 42% of your institution has that type of situation, normally the regulators are going to carry forward that, or at least there's going to be heightened scrutiny on a transaction," Veneri said. "So I do anticipate that's going to come into play and might push it beyond the anticipated nine months."

The deal will probably close in about 12 months, he added.

Janney analyst Jake Civiello modeled his assumptions for Provident's earnings per share estimates based on the second quarter 2023 close estimate, but noted the deal could extend beyond that.

"The timeline for regulatory approval may extend longer than management currently anticipates, impacting all assumptions," he wrote in a Sept. 28 note.

The case for a Q2'23 close

Conversely, Christopher O'Connell Jr., director of equity research at Keefe Bruyette & Woods, believes the timeline is "reasonable," and he does not think the DOJ investigation and settlement would impact the approval process or closing time.

"Obviously we've been seeing some larger deals in the space see longer approval times than maybe in the past few years, over the last 12 months or so, but I still think it's fairly deal-specific," O'Connell said in an interview.

Currently, the Provident-Lakeland deal is the sixth-largest pending U.S. bank deal.

O'Connell pointed to Provident's and Lakeland's recent deal closing histories as one reason the second quarter 2023 close is achievable. In January, Lakeland closed its most recent bank transaction, which was announced in July 2021. Provident's last bank deal was announced in March 2020 and closed in July of that year.

"Both banks have had good standings with their regulators and obviously have both closed a number of deals in their past history, including in recent history," O'Connell said. "So they haven't had issues with closing those deals, which I think is a good indicator."

Provident's CEO also pointed to the companies' success in closing recent deals.

"We've had tremendous success in the past getting our deals through," Labozzetta said on the Sept. 27 deal call. "Based on the past and based on the communication we had, we feel pretty confident even in a tough regulatory environment that it will get done."